4-1Chapter 4Writing a Business PlanBruce R. BarringerR. Duane Ireland6-2Chapter Objectives1 of 21. Explain the purpose of a business plan.2. Discuss the two primary reasons for writing a business plan.3. Describe who reads a business plan and what theyre looking for.4. Explain the difference between a summary business plan, a full business plan, and an operational business plan.5. Explain why the executive summary may be the most important section of a business plan.4-3Chapter Objectives2 of 21. Describe a milestone and how milestones are used in business plans.2. Explain why its important to include separate sections on a firms industry and its target market in a business plan.3. Explain why the Management Team and Company Structure section of a business plan is particularly important.4. Describe the purposes of a sources and uses of funds statement and an assumptions sheet.3-4Chapter Objectives3 of 310. Detail the parts of an oral presentation of a business plan.4-5What Is a Business Plan?Business PlanA business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business plans to accomplish.Dual-Use DocumentFor most new ventures, the business plan is a dual-purpose document used both inside and outside the firm.4-6Why Reads the Business PlanAnd What Are They Looking For?There are two primary audience for a firms business planAudience What They are Looking ForA Firms EmployeesInvestors and other external stakeholdersA clearly written business plan helps the employees of a firm operate in sync and move forward in a consistent and purposeful manner. A firms business plan must make the case that the firm is a good use of an investors funds or the attention of others. 4-7Guidelines for Writing a Business Plan1 of 5Structure of the Business PlanTo make the best impression a business plan should follow a conventional structure, such as the outline for the business plan shown in the chapter.Although some entrepreneurs want to demonstrate creativity, departing from the basic structure of the conventional business plan is usually a mistake. Typically, investors are busy people and want a plan where they can easily find critical information.4-8Guidelines for Writing a Business Plan2 of 5Structure of the Business Plan (continued)Software PackagesThere are many software packages available that employ an interactive, menu-driven approach to assist in the writing of a business plan. Some of these programs are very helpful. However, entrepreneurs should avoid a boilerplate plan that looks as though it came from a canned source.Sense of ExcitementAlong with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture.4-9Guidelines for Writing a Business Plan3 of 5Content of the Business PlanThe business plan should give clear and concise information on all the important aspects of the proposed venture. It must be long enough to provide sufficient information yet short enough to maintain reader interest. For most plans, 25 to 35 pages is sufficient.Types of Business PlansThere are three types of business plans, which are shown on the next slide.4-10Guidelines for Writing a Business Plan4 of 5Types of Business Plans4-11Guidelines for Writing a Business Plan5 of 5Recognizing the Elements of the Plan May ChangeIts important to recognize that the plan will usually change while written.New insights invariably emerge when an entrepreneur or a team of entrepreneurs immerse themselves in writing the plan and start getting feedback from others.4-12Outline of Business PlanOutline of Business PlanA suggested outline of a business plan is shown on the next several slides. Most business plans do not include all the elements introduced in the sample plan; we include them here for the purpose of completeness. Each entrepreneur must decided which elements to include in his or her plan. 4-13Section 1: Executive Summary1 of 2Executive SummaryThe executive summary is a short overview of the entire business plan It provides a busy reader with everything that needs to be known about the new ventures distinctive nature.An executive summary shouldnt exceed two single-space pages.4-14Executive SummaryKey InsightsIn many instances an investor willask for a copy of a firms executivesummary and will ask for a copy ofthe entire plan only if the executive summary is sufficiently convincing.The executive summary, then, isarguably the most important section of a business plan.Section 1: Executive Summary2 of 24-15Section 2: Company Description1 of 2Company DescriptionThe main body of the business plan beings with a general description of the company.Items to include in this section:Company description.Company history.Mission statement.Products and services.Current status.Legal status and ownership.Key partnerships (if any). 4-16Company DescriptionKey InsightsWhile at first glance this sectionmay seem less important than theothers, it is extremely important.It demonstrates to your reader thatyou know how to translate an ideainto a business.Section 2: Company Description2 of 24-17Section 3: Industry Analysis1 of 2Industry AnalysisThis section should being by describing the industry the business will enter in terms of its size, growth rate, and sales projections.Items to include in this section:Industry size, growth rate, and sales projections.Industry structure.Nature of participants.Key success factors.Industry trends.Long-term prospects. 4-18Industry AnalysisKey InsightsBefore a business selects a targetmarket it should have a good graspof its industryincluding where itspromising areas are and where itspoints of vulnerability are.The industry that a company participates in largely defines theplaying field that a firm willparticipate in.Section 3: Industry Analysis2 of 24-19Section 4: Market Analysis1 of 2Market AnalysisThe market analysis breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal.Items to include in this section:Market segmentation and target market selection.Buyer behavior.Competitor analysis.4-20Market AnalysisKey InsightsMost startups do not service theirentire industry. Instead, they focuson servicing a specific (target) market within the industry.Its important to include a section inthe market analysis that deals withthe behavior of the consumers in themarket. The more a startup knowsabout the consumers in its target market, the more it can tailor its products or service appropriately. Section 3: Market Analysis2 of 24-21Section 4: Marketing Plan1 of 2Marketing PlanThe marketing plan focuses on how the business will market and sell its product or service.Items to include in this section:Overall marketing strategy.Product, price, promotions, and distribution. 4-22Marketing PlanKey InsightsThe best way to describe a startupsmarketing plan is to start by articulating its marketing strategy,positioning, and points of differentiation, and then talk abouthow these overall aspects of the plan will be supported by price,promotional mix, and distributionstrategy.Section 4: Marketing Plan2 of 24-23Section 5: Management Team and Company Structure1 of 2Management Team and Company StructureThe management team of a new venture typically consists of the founder or founders and a handful of key management personnel.Items to include in this section:Management team.Board of directors.Board of advisers.Company structure. 4-24Section 5: Management Team and Company Structure2 of 2Management Team and Company StructureKey InsightsThis is a critical section of a business plan.Many investors and others who read the business plan look first atthe executive summary and then godirectly to the management teamsection to assess the strength of thepeople starting the firm.4-25Section 6: Operations Plan1 of 2Operations PlanOutlines how your business will be run and how your product or service will be produced.A useful way to illustrate how your business will be run is to describe it in terms of back stage (unseen to the customer) and front stage (seen by the customer) activities.Items to include in this section:General approach to operations.Business location.Facilities and equipment. 4-26Section 6: Operations Plan2 of 2Operations PlanKey InsightsYour have to strike a careful balancebetween adequately describing thistopic and providing too much detail.As a result, it is best to keep this section short and crisp.4-27Section 7: Product (or Service) Design and Development Plan1 of 2Product (or Service) Design and Development PlanIf youre developing a completely new product or service, you need to include a section that focuses on the status of your development efforts.Items to include in this section:Development status and tasks.Challenges and risks.Intellectual property. 4-28Product (or Service) Design and Development PlanKey InsightsMany seemingly promising startupsnever get off the ground becausetheir product development effortsstall or turn out to be more difficultthan expected.Its important to convince the reader of your plan that this wont happento you.Section 7: Product (or Service) Design and Development Plan2 of 24-29Section 8: Financial Projections1 of 2Financial ProjectionsThe final section of a business plan presents a firms pro forma (or projected) financial projections. Items to include in this section:Sources and uses of funds statement.Assumptions sheet.Pro forma income statements.Pro forma balance sheets.Pro forma cash flows.Ratio analysis. 4-30Section 8: Financial Projections2 of 2Financial ProjectionsKey InsightsHaving completed the earlier sections of the plan, its easy to seewhy the financial projections comelast.They take the plans youve developed and express them in financial terms.4-31Presenting the Business Plan to Investors1 of 3The Oral PresentationThe first rule in making an oral presentation is to follow directions. If youre told you have 15 minutes, dont talk for more than the allotted time.The presentation should be smooth and well-rehearsed.The slides should be sharp and not cluttered.Questions and Feedback to Expect from InvestorsThe smart entrepreneur has a good idea of the questions that will be asked, and will be prepared for those queries.4-32Presenting the Business Plan to Investors2 of 3Twelve PowerPoint Slides to Include in an Investor Presentation1. Title Slide2. Problem3. Solution4. Opportunity and target market5. Technology6. Competition7. Marketing and sales8. Management team9. Financial projections10. Current status11. Financing sought12. Summary4-33Presenting the Business Plan to Investors3 of 3Its also important to look sharp whenpresenting a businessplan.This new venture teamis going over its PowerPoint slides onelast time before an investor presentation.All rights reserved. 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